The Front Page, Asset Management & Investment Funds: Irish Practice Developments
The Front Page, Asset Management & Investment Funds: Irish Practice Developments
Some Approaching Deadlines
31 December 2015, Corporate Governance - completion of reviews of board and individual director performance. Under the Irish Funds Corporate Governance Code, the overall Board's performance and that of individual members must be reviewed annually with a formal documented review and a review of the chairperson taking place at least once every three years. As the Code was adopted by most boards in 2012, the three year review is approaching for many boards.
31 December 2015, Anti-Money Laundering/Counter Terrorist Financing (AML/CTF) - authorised investment funds and management companies should be aware of the regulatory expectation to offer training to their boards on the law relating to AML/CTF on an annual basis (and at such other times as may be appropriate). Boards should also ensure that they have considered whether to adopt a board level AML/CTF policy and where the board has adopted such a policy, that it receives appropriate confirmations from service providers and relevant persons and that the policy is subject to periodic review.
31 December 2015, Business Plan/Programme of Activity - UCITS management companies, self-managed UCITS, AIFMs and internally managed AIFs, where they have not already done so, may need to obtain annual confirmations from service providers and relevant persons in accordance with their business plan/programme of activity, complete onsite visits with service providers, ensure adoption of valuation policy and make disclosure in respect of connected parties transactions.
31 December 2015, Fitness & Probity - management companies, AIFMs, self/ internally managed UCITS/AIFs and other regulated financial service providers (RFSPs), where they have not already done so, will need to obtain their annual certification from persons performing PCFs (e.g. directors) and CFs (e.g. Money Laundering Reporting Officer (MLRO) and Company Secretary) that they are aware of the Fitness and Probity standards, agree to continue to abide by those standards and will notify the RFSP if they no longer comply. This forms part of ongoing performance monitoring set out in Section 22 of the Guidance on Fitness and Probity Standards. The Annual PCF Confirmation Return due dates are highlighted below.
1 January 2016, Directors’ time commitment - from this date, authorised investment funds with individual directors triggering the directors’ time commitment risk indicator will receive priority consideration for inclusion in CBI thematic reviews where board effectiveness is being assessed.
1 January 2016, CRS - from this date there will be a new requirement to identify and confirm the tax residence status of investors in a reporting Irish fund under CRS. This requirement will operate alongside the current requirement to identify and confirm the status of investors under FATCA. Regulations (Returns of Certain Information by Reporting Financial Institutions Regulations 2015) implementing the CRS with effect from 1 January 2016 were signed by the Minister for Finance on 17 December 2015. It is understood that similar regulations in respect of the Directive on Administrative Cooperation (which implements CRS within the EU) will issue once the Finance Bill 2015 has been signed. This is discussed further below.
31 January 2016, Fitness & Probity - Deadline for filing the Annual PCF Confirmation Return (to 31/12/15) for Fund Service Providers (including AIFMs, and UCITS management companies).
19 February 2016, UCITS KIID - Annual update of the key investor information document (KIID) must be filed no later than this date (where required). Any update to the KIID filed with the Central Bank must be translated (as necessary) and filed in any other host jurisdictions where the UCITS is registered to market its shares and uploaded on the UCITS' website.
28 February 2016, Fitness & Probity - Deadline for filing the Annual PCF Confirmation Return (to 31/12/15) for funds.
18 March 2016, UCITS V implementation deadline - UCITS should have in place UCITS V compliant depositary and sub-depositary agreements, whistleblowing policies and procedures, prospectus updates and remuneration policies and procedures.
1 April 2016, Investor Money Regulations - The Central Bank is expected to publish new guidelines soon in respect of the operation umbrella cash accounts by Irish investment funds. We will issue a Front Page newsalert when the guidance issues. We expect that the guidance will look at how subscription / redemption accounts can operate at an umbrella level as fund assets and not be subject to the Investor Money Regulations (which will be effective from 1 April 2016).
30 June 2016, Deadline for filing the Investment Funds Annual Sub-Fund Profile Return on the Central Bank's ONR.
30 June 2016, UCITS management companies, self-managed UCITS, AIFMs and internally managed AIFs are expected to update their business plans/programme of activity to reflect the revised managerial functions, the organisational effectiveness role, ongoing control and operational matters by this date in line with Fund Management Companies – Guidance and CP 86. Moreover, Boards should review their arrangements taking into account the Time Commitments Guidance.
1 September 2016, Companies Act 2015 - The majority of the Companies Act 2014’s provisions commenced on 1 June 2015 (Commencement). If a UCITS management company or AIFM is converting to a CLS, the shareholder(s) of the UCITS ManCo or AIFM must pass a special resolution to adopt a new constitution, which must be filed with the Irish Companies Office (CRO) by 30 November 2016. If the UCITS ManCo or AIFM is converting to a DAC, the shareholder(s) of the UCITS ManCo or AIFM must pass an ordinary resolution resolving that the company be registered as a DAC by 1 September 2016. Variable Capital Companies may choose to update their Memorandum and Articles of Association to reflect the provisions of the Companies Act 2014 and other regulatory changes when planning their Annual General Meetings. Please see our In Focus document for more detail.
This list does not cover ad hoc filings (such as regulatory reports) or filings of annual accounts (and related documents which include annual FDI Return) and semi-annual accounts because these dates will vary to reflect the particular year end.
Central Bank Consultation on Amendments to the AIF Rulebook (CP99)
A consultation paper setting out details of proposed policy amendments and technical changes to the AIF Rulebook,
The latest version of its 'Reporting Guidance for Alternative Investment Fund Managers',
Markets Update Issue 8 2015, and
Information on briefing sessions it will be holding on ESA's AML Guidelines and FATF Mutual Evaluations Review 2016.
Central Bank Consultation on Amendments to the AIF Rulebook; CP99
On 30 November 2015, the Central Bank of Ireland (Central Bank) issued a consultation paper setting out details of proposed policy amendments and technical changes to the AIF Rulebook. This consultation closes on 24 February 2016. In addition to the technical changes, the proposed policy changes deal with;
Extending the category of investors who are provided with an exemption from the eligibility criteria and minimum subscription amount required to invest in a Qualifying Investor AIF;
Amending the reporting requirement which applies to AIF depositaries where they provide services to non-Irish AIFs;
Extending the list of requirements from the AIFM Regulations 2013 which apply to QIAIFs with registered AIFMs;
Aligning the rules which apply to collateral received by Retail Investor AIFs under an OTC derivative or a repo / securities lending contract and the rules which reference external credit ratings with the rules recently introduced for UCITS;
Clarifying that the requirement to hold minimum capital as eligible assets and in a separate account does not apply to internally-managed AIFs;
Removing all references to bearer shares in the AIF Rulebook; and
Requiring external AIFMs and AIF Management Companies to produce a second set of half-yearly accounts.
Central Bank Reporting Guidance for Alternative Investment Fund Managers
The Central Bank also published the latest version of the 'Reporting Guidance for Alternative Investment Fund Managers'. The Guidance has been updated to reflect the reporting requirements for non-EU master AIFs not marketed in the EU that have either EU feeder AIFs or non-EU feeder AIFs marketed in the EU under Article 42 of the AIFMD.
Central Bank Markets Update and Updated Central Bank UCITS Q&A
The Central Bank also published Issue 8 of 2015 of its Markets Update. This covers:
Central Bank of Ireland
Updated Transparency Rules November 2015;
CP99: Consultation on Amendments to the AIF Rulebook (discussed above); and
UCITS Q&A 10th Edition - A new Q&A ID 1058 has been added on the publication and submission to the Central Bank by a UCITS of its first annual/half-yearly reports.
Central Bank UCITS Q&A has been updated as follows:
Q. Regulation 9(4) of the Central Bank UCITS Regulations provides that a ‘responsible person shall not invest assets of the UCITS in a financial index where a single component’s impact on the overall return of that index exceeds the diversification requirements set out in Regulation 71 of the UCITS Regulations’. The Central Bank had, in Guidance Note 2/07, stated that a UCITS proposing to use a financial index comprised of eligible assets with concentrated levels in excess of that permitted by the Regulations, may, applying a look through approach, consolidate the constituents of the index with the assets held directly by the UCITS to ensure it meets the risk-spreading requirements of the Regulations. Is the Central Bank continuing to adopt this position in light of Regulation 9(4)?
A. Regulation 9(4) follows the ESMA guidelines on ETF and other UCITS issues where each financial index must meet the relevant criteria and no look through can be applied. Accordingly, it is not possible to treat such investments as a look through of a financial index. However, this is without prejudice to Article 9(2) of the Eligible Assets Directive (Commission Directive 2007/16/EC) which allows investments in financial derivatives whose underlyings are eligible assets with concentration levels in excess of that permitted by the UCITS Regulations to be regarded as financial derivatives on a combination of assets.
Reporting Guidance for Alternative Investment Fund Managers;
Address by Gerry Cross, Director, Policy and Risk, Central Bank of Ireland to the ACOI Annual Conference.
European Securities and Markets Authority (ESMA)
ESMA has published its Final Report on Guidelines on complex debt instruments and structured deposits in MiFID II;
ESMA will not exempt the collateralisation of bank guarantees for energy derivatives under EMIR;
MiFID: ESMA has made available pan-EU data on suspensions and removals from trading;
ESMA has published a discussion paper to consult on the validation and review of Credit Rating Agencies' methodologies;
ESMA has updated EMIR standards on data reporting;
ESAs have defined risk weights for credit ratings in the EU;
ESAs have published a consultation paper on PRIIPs Key Information Documents;
ESMA Chair's statement to the ECON Committee Scrutiny Hearing on MiFID II;
ESMA has approved Greek HCMC short selling ban on bank shares;
ESMA has published MAD/MAR Q&A;
ESMA is consulting on indirect clearing arrangements;
ESMA has published responses to the Consultation on Draft implementing technical standards under MiFID II.
IOSCO (International Organization of Securities Commission)
CPMI-IOSCO have published a consultative paper - Guidance on cyber resilience for financial market infrastructures;
IOSCO has published its final report on Standards for the Custody of CIS Assets.
EBA (European Banking Authority)
Joint Consultation Paper on PRIIPs key information for EU retail investors.
Prospectus Rules Overhaul.
Central Bank briefing on ESA's AML Guidelines and FATF Mutual Evaluations Review 2016
The Central Bank held briefing sessions on two regulatory guidelines recently published by the European Supervisory Authorities (ESAs) AML committee. It also provided a brief outline of the forthcoming FATF Mutual Evaluation Review (MER) of Ireland that is due to take place in 2016 and to explain what involvement the private sector will have during the process. The ESA’s guidance papers concern the risk factors to be considered when applying customer due diligence and the risk based supervision. The briefing sessions were provided by Tony Cahalan and Hannah O’Neill from the Legal and Policy section of the Anti-Money Laundering Division in the Central Bank. The Central Bank highlighted the following resources.
Central Bank programme of themed inspections in Markets Supervision
The Markets Supervision Directorate of the Central Bank published its programme of themed-inspections for 2016. These inspections reflect a number of supervisory priorities for 2016 and anticipate areas of emerging risk. This programme builds on the successful supervisory work undertaken in 2015 in the areas of Cyber Security, Operational Risk and Investment Fund pricing. The planned themed-inspections, which supplement day-to-day supervisory activities, for 2016 are:
Outsourcing Arrangements - Inspection of service level agreements and operational arrangements with outsourcing providers for Investment Firms, Fund Managers and Fund Service Providers.
AIFM Programme of Activities - Review of AIFMs adherence to their programme of activity.
Risk Function - Focus on the risk culture within firms including governance arrangements, risk ownership and responsibility.
Investment Funds - Analysis of the production costs of investment funds.
Financial Indices – Review of the use of financial indices as eligible investments for UCITS investment funds.
Director Time Commitments - Continued focus on various issues with director time commitments.
Client Assets - Focused review of Client Asset Management Plans for Investment Firms.
Information Technology Risk - Focus on resilience of firms’ IT systems.
Suitability – Review of the suitability assessment of clients.
Conduct - Examination of the information provided to clients on an on-going basis.
Hedging Arrangements - Review of hedging arrangements at share class level for investment funds.
Market Integrity - Review of the practices of firms when dealing with insider information and their compliance with Market Abuse Regulations (Reg (EU) No 596/2014).
Director of Markets Supervision, Gareth Murphy said: “Consistent with the Central Bank’s mandate of investor protection, market integrity and financial stability, we are embarking upon a large number of themed-inspections for 2016. Some of these inspections are a continuation of our work in 2015 where follow-up is warranted. An underlying theme for many of these areas is the need to strengthen firms' culture of regulatory compliance. The Central Bank is increasing its inspection activities for entities deemed to be low impact under PRISM and is further developing data analytics to sharpen the focus of supervisory resources. Following these inspections, the Central Bank will communicate its assessment of the issues which have emerged and will use the full range of its powers to ensure that remedial actions are taken where there are unacceptable breaches or where the regulatory risks are unacceptable.”
CRS and FATCA
As detailed in our Front Page article of 13 November, the Common Reporting Standard (CRS) impacts Irish funds from 1 January 2016. Questions have arisen from industry in relation to the application of the requirement for investor self-certification at account opening under the CRS, which is due to take effect from 1 January 2016, and also under the existing FATCA reporting framework as already implemented in Ireland under the Intergovernmental Agreement with the US. The Irish Funds FATCA/CRS Working Group has been engaging on behalf of industry with Irish Revenue on these questions and the clarifications being sought in the context of FAQs issued by the US Internal Revenue Service in respect of FATCA and by the OECD in respect of CRS. The FATCA/CRS Working Group has prepared an Information Note on self-certification at account opening. Furthermore, due to industry demand for a CRS only version of the self-certification forms previously issued, Irish Funds have circulated a CRS only self-certification form for individuals and a CRS only self-certification form for entities. These forms can be used as a CRS only declaration where account holders wish to use Forms W-8/W-9 for FATCA self-certification purposes.
New Transparency Regulations
New Transparency Regulations were recently published, and have been supplemented as before by revised Central Bank Transparency Rules. The new Regulations transpose Directive 2013/50/EU. In a Funds context, the Transparency regime applies to closed-ended funds.